5 Best ways to invest in your 20s

You have youth and ambition with big dreams. And you need money to finance those dreams – fast.

But you know you have to be smart about it. But saving “10% of your paycheck” money in a bank account isn’t going to cut it anymore. And you don’t want to be in the hamster wheel forever until you’re 60.

You’ve asked yourself, “How to be rich?” or “How to be a millionaire in your 20s?” There’s no shame. You’re only weird if you haven’t asked that. Spoiler: You got to invest.

Because being rich is the closest thing to being “free”.

You don’t have to be stuck in a job you don’t like for the sake of paying the bills. You can spend the time you wish in more fulfilling roles. 

You don’t have to ask anyone’s permission for time off. You are in control. 

Your money can buy back a lot of the important things – your choice and your time. While money may not be able to buy happiness, it’s linked to everything that does. It buys you the freedom to not worry about money and find out what makes you happy. 

Never again do you have to resign yourself to a life less than your abundant dreams. 

It does, however, mean you have to be more strategic. The simple “save 10%” in the bank no longer applies to our generation. There are more ways than ever to make money.

You also recognize that being in your 20s has a huge advantage

Because of the magic of compound investing – you’re a decade ahead of most!

What is compound investing? In short: Compound interest is when you earn interest on both the money you’ve saved (the principal balance) and the interest you earn. As your money grows each year, the more money you make on it. 

The average person has around five decades in their investment journey. People usually start in their third decade of life – and by then they’re playing “catch-up”. 

Investing in your 20s means you’ll be ahead of the curve by a whopping 10 years!

When it comes to investing, sooner is better and longer is best. The earlier you start investing, the more time your money has to grow. We want the magic of compound interest to work on our side for as long as possible.

Here’s a quick example to hit it home. Imagine you earn an average of 8% annual returns on your investments that compound monthly. If you invest the same amount for the given years, these would be your projected earnings on the initial principal of $30,000. 

Invest $300/month for 40 years: Project earnings $864,116 (compound earnings total $574,845)
Invest $300/month for 20 years: Projected earnings $229,854 (compound earnings total $76,061)
Invest $300/month for 30 years: Project earnings $457,984 (compound earnings total $236,206) 

Looking at the 40-year timeline, the compound interest alone nearly doubles your money. 

Even if you start as late as I did – don’t fret. Don’t feel overwhelmed. Everything only seems hard in the beginning – until it isn’t. You can still make huge growth with good investments.

5 Best Types of Investments

To help, here are five places to invest your money you ought to be aware of. Most of these options are beginner-friendly, but all offer great potential for long-term growth. 

1. Retirement Accounts

401k is common in the USA workplace and offered by American employers. There are also traditional IRA or Roth IRA accounts. 

These accounts allow employees to contribute a portion of their pre-tax salary into a tax-advantaged investment account. The best thing about these accounts is that the savings are tax-deferred. Meaning, taxes on contributions and investment gains are deferred until you take the money out. 

Taking money out after reaching the age of 60 is typically penalty-free. 

An added benefit is that most employers offer a 401k contribution match. Which means your employers will match your contributed dollar to dollar. 

This is free money. Do not wait!

2. Real Estate

Investing through traditional real estate is a tried-and-true method. It is potentially lucrative, but one subjected to a lot of various factors. 

When you purchase traditional real estate, it has the potential for appreciation. The value of real estate tends to increase over time. You pocket a nice return when you sell your real estate investment down the line. 

In the meantime, your real estate investment can provide a steady stream of rental income, if leased out to tenants. You’ll be donning the ‘landlord’ That, but you’ll have cash flow. 

Whether real estate is a good investment depends ultimately on your risk tolerance. It requires capital investments and a steep learning curve. You’ll also be subjected to the occasional repairs and updates which can be costly. It is also one of the more actively managed investments.  

3. Stocks

Stock investments have a great potential for long-term growth.

Also known as ‘equities’ or ‘shares’, it represents partial ownership of the company. As the company grows, your stock ownership also grows. 

The initial capital to invest is lower than traditional real estate, making it a lower barrier of entry for most. They are generally more liquid and you can diversify over a lot of industries. 

Some stocks even issue “dividends” to their investors. Dividends are a portion of the company’s profits given to its shareholders (you) as a ‘thank you’ for the success of the company. 

4. Index Funds

Rather than buying stock in one company – buy all the companies. An index fund lets you purchase several stocks at once. 

Legendary investor, Warren Buffett, has recommended index funds as a haven for savings for the later years of life.

Buffet stands behind index funds so much that he won a $2.2 million dollar bet. In 2008, he claims the hedge fund’s hand-picked performance cannot justify its exorbitant fees. Buffet issued a million-dollar bet against the hedge fund industry that index funds will outperform hand-picked stocks. 

He was right.

By the end of the bet, Buffet’s index fund had gained an average of 7% per year compared to the average 2,2% of the hedge fund’s picks. 

Rather than picking out individual stocks, the average investor would make more by buying all of the S&P500 at a low-cost index fund. 

5. Starting Your Own Business

This is one of my favourites – because I have the most control and I believe in what I do. 

Also, I find it the most fun. 

Whether you’re interested in starting a side hustle or launching a full-time business, entrepreneurship can be a lucrative investment.

Being a business owner might have the most investment in time, but you’ll often have the most control and no earnings cap. 

One of the easiest business you could do from home with little capital is owning a blog yourself. I wrote an in-depth article about how to start one in a weekend.

BONUS: Education

Don’t aim for the job title. Aim to work in a specific industry. Levelling up your skills helps you stand out in the workforce and marketplace. 

The more skills you have, the more valuable you are. 

You’ll be able to negotiate and command a better salary. Often, additional certifications and specialized training open up opportunities for higher-paying jobs. These jobs often being inaccessible to individuals with minimum education. 

A nice side bonus of education is developing your network to leverage. It’s not just what you know, it’s also who you know. If no one knows what you can do, you cannot apply your skills. 

Tips for Successful Investing

A lot of people tend to overcomplicate investing so much it overwhelms them from even starting. Here’s a few takeaways to remember when you’re in doubt:

Start Early

Don’t delay.

Don’t use overwhelm or fear to hold you back or procrastinate on your future. Remember, when it comes to investing, sooner is better and longer is best.

Diversify Your Portfolio AFTER

The average millionaire has about 7 streams of income. What they forget to tell you is that every millionaire starts with one stream of income before diversifying. 

Diversification is key to reducing risk in your investment portfolio. It provides more stability and reduces risk. It does not, however, mean you must diversify your attention. 

Chasing seven rabbits means you’ll catch none. Focus on one thing at a time. Get really good at it. Not only is that easier, but it’s also more sustainable and yields higher returns. 

Keep an Eye on Fees

They’re not hidden. Just overlooked. Fees can eat into your investment returns over time. 

Especially when you are starting out, it’s best to choose investments with low fees like index funds or exchange-traded funds (ETFS). Additionally, it’s important to avoid excessive trading, which can also lead to higher fees and lower returns.

Even with real estate, your final profit margin may not be as high as you first calculated. After you subtract the property tax, insurance, management fees, mortgage, real estate agent commission, land transfer tax, lawyer fees, home inspection costs, utilities, and perhaps furniture…make sure the number left over is worth your effort. 

Stay Informed About Your Investments

‘Buy-and-hold’ is a legitimate strategy. It is way different from ‘set-it-and-forget-it’. 

It’s important to stay up-to-date on the performance of your investments and make changes as needed. Regularly reviewing your investment portfolio can help you identify areas where you may need to make adjustments. 

Overall, the key is to start early, be consistent, and stay focused on your long-term goals. With the right approach and a bit of patience, investing in your 20s can help set you up for a bright financial future.

Would you add anything?